Concerned about how aggressively many Illinois state employees had invested 457 plan assets, plan trustees decided in late 2014 on a bold move: Investments of all 53,000 participants would be moved into a lifecycle fund unless a participant opted out of reenrollment.
The reenrollment depended on “a very aggressive and, ideally, successful communication program to notify plan participants what was going on, why we were doing this and what their options were,” said William R. Atwood, executive director of Illinois State Board of Investment (ISBI).
Johara Farhadieh, portfolio manager for ISBI, led development of the communication plan with help from State of Illinois Central Management Services, consultants from Marquette Associates and recordkeeper T. Rowe Price.
As Atwood and Farhadieh explain in “What’s Working: DC Plan Reenrollment” in the February issue of Benefits Magazine, communications worked even better than trustees had hoped.
Timing, language and which media to use were important to the communication strategy, which T. Rowe Price executed.
- Participants received mailed and e-mailed notices of what was changing and important dates to remember, such as the opt-out period and when the transfer of assets would occur.
- In six cities throughout Illinois, a total of 24 live presentations attracted large audiences, and participants could watch live webinars on April 15 and 22. The webinars also were recorded and could be viewed at participants’ convenience.
- “Important Enhancements Coming to the State of Illinois Deferred Compensation Plan,” a brochure written as plainly as possible, was mailed to every participant’s home separately from regular quarterly newsletters that also discussed the reenrollment.
Atwood said the response was overwhelmingly positive. ISBI also made sure the employee union, the American Federation of State, County and Municipal Employees, was aware of why the reenrollment was being done.
[Related: Public Sector 401, 403, 457 Plans, February 17-18, San Diego, California]
Trustees expected that after the April 30, 2015 reenrollment, 85% of the $4.1 billion in plan assets would be invested in lifecycle funds. Had that happened, it would have meant that about 85% of participants did nothing. In other words, they wouldn’t have taken advantage of the three-week opt-out period.
Instead, a high percentage of plan participants thoughtfully made their own investment decisions. Even though trustees might have preferred that more participants invested in lifecycle funds, the results showed participants took the communications to heart and made a proactive decision. Only 62% of assets ended up in lifecycle funds and, as of September 30, 2015 that was down to 54.1% of assets.
[Related: Selecting Target-Date Funds | Benefit Bits Video]
Maybe more important, only 5.5% of assets were in the most aggressive investment option, a new small cap growth fund. The fact that nearly a quarter of participants had been invested in the previous small cap growth fund, whose performance was slipping, was what prompted trustees’ decision to do the reenrollment.
[Related: Public Sector Benefits Institute, February 15-17, Orlando, Florida]
“What this said to us was that our communication effort was more successful than we had anticipated, and people were well-aware of the reenrollment,” Atwood said. “A significant number opted to not reenroll and thoughtfully made whatever investment option they wanted to make.”
Chris Vogel, CEBS
Senior Editor—Publications at the International Foundation